OPEC+ Faces Output Decision After Biden’s Saudi Trip

In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP
In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP

 

The OPEC+ group of oil exporters meets Wednesday to discuss another output increase, weeks after US President Joe Biden sought to persuade Saudi Arabia to boost production during a controversial visit to the country.

The White House has been pressing the oil cartel to step up production to tame prices that have surged since Russia invaded Ukraine in late February.

But the group, which is led by Saudi Arabia and Russia, has stuck to modest increases so far.

The 13-member Organization of the Petroleum Exporting Countries, along with 10 allies that include Russia, had slashed production at the height of the Covid pandemic in 2020 after a plunge in demand caused prices to sink.

The group began to raise production last year, agreeing to add 400,000 barrels per day to the market. It backed an increase of nearly 650,000 barrels per day in June, still not enough to spark a big drop in oil prices.

The alliance’s output is back to pre-virus levels, but just on paper as a few members have struggled to meet their quotas.

All eyes will be on whether OPEC+ sticks to the same output policy or steps it up.

READ ALSO: First Grain Shipment Leaves Ukraine As Southern City Pounded

Biden’s Saudi Voyage 

Biden travelled to Saudi Arabia in mid-July to meet Crown Prince Mohammed bin Salman despite his promise to make the kingdom a “pariah” in the wake of the 2018 killing of journalist Jamal Khashoggi.

Part of the reason for the controversial trip was to convince Riyadh to continue loosening the production taps to stabilise the market and curb rampant inflation.

After his meetings with Saudi leaders in mid-July, Biden said he was “doing all I can” to increase the oil supply but added that concrete results would not be seen “for another couple weeks” — and it was unclear what those might be.

Wednesday’s meeting will reveal whether his efforts were successful.

“The US administration appears to be anticipating some good news but it’s hard to know whether that’s based on assurances during Biden’s trip or not,” Craig Erlam, analyst at OANDA trading platform, told AFP.

Stephen Innes, managing partner at SPI Asset Management, said it “wouldn’t be a surprise to see the Saudis announce something that Biden could tout as a win to voters at home.”

Sceptical Market 

According to the London-based research institute Energy Aspects, OPEC+ could adjust its current agreement in order to keep raising crude production volumes.

However, analysts warn against expecting any drastic increases.

OPEC+ has to take into account the fact that the interests of Russia — a key player in the alliance — are diametrically opposed to those of Washington.

“Saudi Arabia has to walk a fine line,” said Tamas Varga, analyst at PVM Energy.

Any decision on Wednesday will have to be unanimous, which may lead to a longer meeting than normal.

“Any new OPEC+ deal aimed at further ramping up supplies is likely to be met with market scepticism, considering the supply constraints already evident within the alliance,” said Han Tan, chief market analyst at Exinity.

The group will decide output policy under a new secretary general, Kuwait’s Haitham Al-Ghais, who took office on Monday following the death of Nigeria’s Mohammed Barkindo last month.

“I look forward to working with all our Member Countries and our many partners around the world to ensure a sustainable and inclusive energy future which leaves no one behind,” Al-Ghais said in a statement.

AFP

OPEC Secretary-General, Mohammed Barkindo, Dies Hours After Being Honoured By Buhari

President Muhammadu Buhari exchanges pleasantries with the outgoing OPEC Secretary-General, Mohammed Barkindo, at the State House in Abuja on July 5, 2022.

 

The Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), Mohammad Sanusi Barkindo, has died, hours after being honoured by President Muhammadu Buhari.

Barkindo died on Tuesday evening, according to the Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari.

“We lost our esteemed Dr Muhammad Sanusi Barkindo,” Kyari said in a tweet.

READ ALSO: ‘You’ve Been A Worthy Ambassador,’ Buhari Praises Outgoing OPEC Chief Barkindo

“He died at about 11pm yesterday 5th July 2022. Certainly a great loss to his immediate family, the NNPC, our country Nigeria, the OPEC, and the global energy community.

Outgoing OPEC Secretary-General, Mohammed Barkindo, with President Muhammadu Buhari in Abuja on July 5, 2022.

 

“Burial arrangements will be announced shortly.”

‘Worthy ambassador’

Barkindo earlier on Tuesday had been honoured by President Buhari at the State House in Abuja for his work at OPEC.

Outgoing OPEC Secretary-General, Mohammed Barkindo, with President Muhammadu Buhari in Abuja on July 5, 2022.

 

His tenure as OPEC Secretary-General was scheduled to expire this July.

The President described him as a worthy ambassador of the country.

“You have indeed been a worthy ambassador of our country,” President Buhari was quoted as saying in a statement by his media adviser, Femi Adesina.

“We are proud of your achievements before and during your appointment at OPEC and the proud legacies you will leave behind.

 

“Your time in charge of the affairs of OPEC has been a very challenging one for the global oil industry. Oil producers were finding it difficult to come together to address challenges that were crippling the oil market.”

He added, “Not long after, the world was faced with the COVID-19 pandemic that sent crude prices spiralling down at an alarming rate. You showed incredible leadership to rally industry players and pushed through the turbulent times.

“There is no doubt about your efforts in putting together the Declaration of Cooperation which is the largest in the history of OPEC and the global oil industry and also the longest in duration in the history of the organization. This was a herculean task.”

Top Oil Producers To Meet Amid Record Crude Prices

In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP
In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP

 

The world’s top oil-producing countries will meet on Wednesday to discuss a further increase in output, while crude prices have reached seven-year highs rattled by geopolitical tensions.

Part of their regular meetings since the Covid-19 pandemic shook markets, the 13 members of the Organization of the Petroleum Exporting Countries (OPEC) and their 10 allies convene by videoconference to set output.

Many analysts expect the grouping, including Saudi Arabia and Russia, to decide to continue to boost output by 400,000 barrels per day in March.

This will be in line with their strategy to slowly re-open the taps since May last year, after drastic cuts to curb slumping prices when the coronavirus first started spreading.

READ ALSO: Qatar Emir Meets Biden In Shadow Of Ukraine Tensions

“With that said, we wouldn’t completely rule out a larger increase, given high oil prices and recent OPEC+ underproduction,” Capital Economics analysts said.

Brent oil on Wednesday surpassed $90 per barrel, attaining a level last seen in October 2014.

The price of West Texas Intermediate (WTI) crude hit its highest level in more than seven years earlier this month, fuelled by easing concerns about the Omicron Covid variant and geopolitical tensions.

– Russia sanctions? –

The United States and Britain on Sunday flagged new and “devastating” economic sanctions against Russia, as Washington and its NATO allies step up efforts to deter any invasion of Ukraine.

Fears of an imminent invasion have grown in recent days, despite denials from Moscow and pleas from Ukraine’s president to avoid stirring “panic” over the massive Russian military build-up on the border.

A Russian invasion of Ukraine would lead to “very hard sanctions” against Moscow, according to Bjarne Schieldrop, analyst at SEB.

“It would halt exports of natural gas to Europe even more. Natural gas and power prices in Europe would be much higher than the current extremely high prices we have now,” he told AFP.

In the Middle East, Yemen’s Iran-backed Huthi rebels — which have frequently targeted Saudi Arabia — launched two missile attacks on the United Arab Emirates this month.

The Emirates has had a major role in the Saudi-led military coalition backing Yemen’s internationally recognised government against the Huthis.

– Struggling to meet targets –

Besides the geopolitical uncertainties, analysts have noted that OPEC nations and other key producers are struggling to meet targets to lift output by 400,000 barrels a month, adding to the upward pressure on prices.

“OPEC+ underperformance and inaction support elevated oil prices as the group has underdelivered against its stated production targets by hundreds of thousands of barrels,” Rystad Energy analyst Louise Dickson said.

The grouping “has committed to a passive role in the conversation despite external pressure primarily from the US, to increase production and ease fuel prices,” she added.

Schieldrop also noted that top producer Saudi Arabia in the last meeting “made it clear that they will not step up production beyond their cap to cover losses by other members. No rescue there.”

OPEC, Allies Maintain Modest Boosting Of Oil Output

In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP
In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP

 

OPEC and its allies decided on Tuesday to maintain their policy of modestly boosting oil output next month as the rapidly spreading Omicron variant has so far not heavily hit demand.

The OPEC+ grouping, including top producers Saudi Arabia and Russia, has resisted US pressure for a wider opening of the taps in response to high energy prices fuelling a surge in inflation across the world.

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) and their 10 allies drastically slashed output in 2020 as the pandemic wreaked havoc with demand.

READ ALSO: Kuwait’s Al-Ghais To Succeed Nigeria’s Barkindo As OPEC Secretary-General

Last year they decided to step it up again gradually as prices recovered, while reviewing the situation every month.

After a short videoconference meeting on Tuesday, the group said it had agreed to raise output by 400,000 barrels per day in February, the same increase as in previous months.

Since demand has barely been affected by Omicron, “we have to fulfil the obligations OPEC+ has set itself in relation to boosting production, Russian Deputy Prime Minister Alexander Novak, who is responsible for energy policy, told Rossiya 24 TV.

“The decision was widely expected, and oil prices barely moved on the news,” said Caroline Bain, chief commodities economist at Capital Economics.

The price of Brent, Europe’s benchmark oil contract, rose slightly to $79.60 on the news of OPEC+’s decision, buoyed by the organisation’s optimistic outlook for demand.

Hopes for normality

The club’s members had approved a similar hike at their December meeting despite the emergence of Omicron, which  had caused prices to fall as markets fretted over the Covid variant’s potential impact on the global economy.

The December decision earned the thanks of the White House, nervous of the effect of rising prices at American petrol stations, but it did not prevent crude prices from recovering considerably from their previous slump.

OPEC analysts told the group on Monday that Omicron would have a moderate impact on demand and the rise in price is expected to continue in 2022.

While the new Covid variant is spreading like wildfire around the world, it appears to be far less severe than initially feared, raising hopes that the pandemic could be overcome and life return to a little more normality.

OPEC+’s next meeting has been fixed for February 2, when members will take stock of the fast-moving developments in the pandemic.

On the eve of Tuesday’s meeting, OPEC named Kuwaiti oil executive Haitham al-Ghais to succeed Secretary-General Mohammad Barkindo on August 1.

Al-Ghais, who was Kuwait’s OPEC governor from 2017 to June 2021, is a deputy managing director of the Kuwait Petroleum Corporation (KPC).

Iran exports

While OPEC+ countries have been gradually increasing output again since last year, analysts note some countries, such as Nigeria and Angola, have been struggling to lift production.

“Important here is that Russia did not lift production in December which could be a sign that they are getting closer to their capacity,” SEB chief commodities analyst Bjarne Schieldrop said.

For Russia, Novak said the rise announced on Tuesday “means that from now until February we will have reversed around 85 percent of cuts in production” made in spring 2020, taking the country’s output 1.7 million bpd higher as compared with that period.

Another oil heavyweight, Iran, has seen its exports limited by US sanctions.

Talks to revive an international deal, which curbed Iran’s nuclear activities in exchange for sanctions relief, are underway in Vienna.

They have dragged on since last year but negotiators are pushing to conclude the talks to get the landmark 2015 agreement back on track.

It was thrown into disarray in 2018 when the US withdrew from the accord.

Kuwait’s Al-Ghais To Succeed Nigeria’s Barkindo As OPEC Secretary-General

Haitham al-Ghais, Kuwait’s then-OPEC governor, looks on during a press conference at the end of the Organisation of Arab Petroleum Exporting Countries (OAPEC) meeting in Kuwait City on December 23, 2018. Yasser Al-Zayyat / AFP

 

Top oil-producing countries on Monday picked Kuwaiti oil executive Haitham al-Ghais as the next Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC).

He will replace Nigeria’s Mohammed Barkindo, who took over the helm of the organisation in 2016 and led it for two terms.

Al-Ghais, who was Kuwait’s OPEC governor from 2017 to June 2021, serves as a Deputy Managing Director of the Kuwait Petroleum Corporation (KPC).

His decades of experience in the industry include stints in Beijing and London for the state oil corporation.

Read Also: Notorious Bandit Leader, Turji, Frees Over 50 Victims Amidst Military Offensive

OPEC said in a statement that al-Ghais was appointed by acclamation and will take up his three-year post on August 1.

During Barkindo’s tenure, the group drastically slashed oil output in 2020 as the coronavirus pandemic hit global markets.

Last year, OPEC and 10 allies including Russia began to gradually open the tabs again, and prices have bounced back.

Outgoing OPEC Secretary-General Mohammed Barkindo

 

The Vienna-based organisation comprises 13 members led by Saudi Arabia which fix output to control prices along with the 10 other countries in a grouping dubbed OPEC+.

So far OPEC+ has resisted pressure by top oil consuming nations, such as the United States, to more aggressively boost production.

A monthly OPEC+ meeting of all 23 members via videoconference on Tuesday is expected to continue to stay the course and modestly boost output.

The OPEC general secretary has no executive power, but is the public figure of the organisation, which represents countries with divergent interests, such as Saudi Arabia and Iran.

The group in its statement credited Barkindo with being “instrumental in expanding OPEC’s historical efforts to support sustainable oil market stability through enhanced dialogue and cooperation with many energy stakeholders” in the face of the pandemic.

OPEC+ To Increase Output In January Despite Omicron Jitters

An oil pumpjack operates in Signal Hill, south of Los Angeles, California on April 21, 2020. Frederic J. BROWN / AFP.

 

Major oil producers decided Thursday to keep raising output levels in January, despite the Omicron coronavirus variant raising fresh questions over demand.

The OPEC+ alliance led by Saudi Arabia and Russia had so far resisted US-led pressure to significantly boost output to rein in surging energy prices.

Observers had expected the club to opt for a freeze in production for January, particularly after the emergence of the Omicron variant sent countries rushing to impose new travel curbs and mull other measures that could dampen demand and hurt oil prices.

READ ALSO: Brazil’s Economy Goes Into Recession

But after meeting for a little over an hour on Thursday afternoon via video conference, the 13 members of the Vienna-based Organization of Petroleum Exporting Countries (OPEC) and their 10 allies decided to stick with a modest increase in output of 400,000 barrels per day every month, as they have been doing since May.

The OPEC+ meeting came a week after the United States and to a lesser extent China, India and Japan decided to dip into their strategic reserves to help bring down crude prices, after a price surge that has undermined economic recovery.

“We suspect that the US-led co-ordinated release of oil reserves… was one reason why OPEC+ decided to push ahead with their plan to raise oil output,” said commodities economist Edward Gardner from Capital Economics, noting that “the group might not want to provoke further action from the large oil consumers”.

“Rather surprisingly, OPEC+ decided to go ahead with the increase, sending prices back into the red”, said Michael Hewson, chief market analyst at CMC Markets.

The decision did indeed send prices for the two benchmark oil contracts, WTI and Brent, tumbling to their lowest levels since late August at $62 and $65 per barrel respectively.

They then recovered to nearly $67 and $70, both gains on the day, but were still some way below the highs recorded in late October.

The United States welcomed the decision by OPEC+ members to increase output.

“Together with our recent coordinated release from the (strategic petroleum reserves), we believe this should help facilitate the global economic recovery,” said White House spokeswoman Jen Psaki.

Russian Deputy Prime Minister Alexander Novak told news agencies that the decision “was explained by the fact that the market is stable and that demand is recovering”.

However, he acknowledged that there was “a lot of uncertainty” linked to the Omicron variant and said that “we will — along with other countries — of course monitor the situation to see how it affects travel”.

Ann-Louise Hittle, head of oils research at Wood Mackenzie, said that “in a highly uncertain situation, the best option is to stick with the plan. That is exactly what OPEC+ has done today.”

Analysts also noted that Thursday’s meeting had been technically left “in session”, which according to Gardner “appears to be a way of leaving the door open for a change to output quotas before the next meeting in early January”.

‘Steady progress’

In the run-up to the meeting, OPEC and its members had kept markets guessing as to the likely course of action.

At a technical meeting on Wednesday, OPEC Secretary General Mohammed Barkindo had “highlighted… that steady progress has been made on the global economic recovery”, but also “underscored the need to remain attentive to the prevailing uncertainties and shifting conditions, including those related to the new Covid-19 variant Omicron.”

The group’s spare capacity is some 10 times higher than the 400,000 barrels per day that it has been adding to the markets every month.

OPEC+ drastically slashed output last year as the pandemic began to unfold, and virus-related restrictions caused demand to crash.

Another variable the bloc may have to contend with in coming months is the possible return to the market of Iran if talks in Vienna lead to the revival of the 2015 nuclear deal between Tehran and world powers.

Iran’s Foreign Minister Hossein Amir-Abdollahian said Thursday a deal was “within reach if the West shows good will”.

AFP

OPEC+ To Meet As Omicron Sparks Price Turmoil

In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP
In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP

 

OPEC and the oil cartel’s allies hold a key output meeting on Thursday facing new challenges as the Omicron coronavirus variant has roiled markets and other US-led nations decided to tap their strategic reserves.

The OPEC+ alliance has resisted US-led pressure to step up production to bring down surging energy prices, and the emergence of the new variant has complicated the equation.

The meeting “is shaping up to be one of the most significant since the pandemic demand recovery began, and the key signal will be how much more oil will be added to supply to start the new year,” said Peter McNally, an analyst at the Third Bridge think tank.

The detection of the new variant on Thursday caused crude prices to plunge more than 10 percent, a first since the massive drops of April 2020.

After bouncing back on Monday, oil prices fell again on Tuesday as the head of US pharmaceutical company Moderna warned that current vaccines might be less effective at fending off the Omicron variant.

Carsten Fritsch of Commerzbank said “there is much to suggest that OPEC+ will not initially step up its oil production any further” in an effort to maintain current prices at around $70 a barrel.

OPEC+ countries began slowly boosting output in May.

The group has been adding 400,000 barrels per day to the markets every month, even though its capacity is 10 times higher than that.

The alliance will discuss its output levels for early 2022 at the meeting.

No ‘hasty’ moves

Russian Deputy Prime Minister Alexander Novak, the Kremlin’s oil pointman, warned Monday against any “hasty decisions”, according to Russian news agencies.

A technical meeting was set for Tuesday ahead of the meeting but was postponed to Thursday as experts seek more information on the “current situation”, Novak said.

The conference also comes a week after the United States, China, India and Japan decided to dip into their strategic reserves to help bring down crude prices, after a surge that has undermined economic recovery.

US President Joe Biden called it a “major initiative”, with analysts estimating the injection at between 65 and 80 million barrels, including 50 million from the United States alone.

Oil prices rose despite the move, but they fell after Omicron emerged.

Iran’s possible re-entry into OPEC will be another key element in the OPEC calculus.

Iran was sidelined from OPEC in 2018 when then US president Donald Trump pulled Washington out of the 2015 nuclear accord with the Islamic republic.

After a five-month hiatus, negotiations resumed Monday in Vienna.

While most analysts are pessimistic about the outcome, Bjarne Schieldrop of Swedish bank SEB said: “Getting Iranian oil production and exports back on track is probably the best option for President Joe Biden to ease the current oil market tightness.”

Iran produced nearly four million barrels a day in 2017 — an output that dropped to around two million barrels per day last year.

Oil Prices Surge, Stocks Slump

File Photo of OPEC.

 

Oil prices surged on Monday as OPEC+ kept to its plan to not boost output further, while US and European stocks slumped amid worries over inflation and higher interest rates.

US oil prices soared to their highest level since November 2014 after OPEC and key allies — known as OPEC+ — decided to stick with their planned moderate increase next month, despite the recent surge in prices.

Meanwhile, the price of the main international contract, Brent oil, jumped above $82 a barrel before finishing at $81.26 a barrel.

“The decision by OPEC+ to add the expected 400,000 barrels per day in November triggered a market reaction, as traders are now more boldly coming out from their cautious positions and pricing in a confirmed, tighter supply market,” said Bjornar Tonhaugen, head oil markets at Rystad Energy.

Some economists are worried that sustained oil prices of $80 per barrel could undermine the recovery of the global economy, already under strain from snags in supply chains.

“Producing nations, and namely OPEC+, have to be careful not to allow prices to inflate too much, otherwise we may see an adverse reaction that could negatively impact post-pandemic economic growth,” Tonhaugen said.

Gains in European equities evaporated and US stocks sank as oil prices continued to rise after the OPEC+ announcement.

Analysts pointed to higher yields in government bonds as a drag amid expectations for tightening monetary policy.

The tech-rich Nasdaq led the market lower, slumping 2.1 percent as highflyers such as Amazon and Apple lost around two percent or more.

Facebook sank nearly five precent, weighed down by a major outage on its services as well as heightening scrutiny of its operations after whistleblower Frances Haugen told television news show “60 Minutes” the company repeatedly chose “profit over safety” in managing the omnipresent social media company.

 

Evergrande Worries

In Asia, shares mostly rose, but Hong Kong sank on fears about troubled property giant China Evergrande, which suspended trading in its shares.

The crisis at Evergrande, which is drowning in a sea of debt worth more than $300 billion, has roiled markets in recent weeks on fears that its failure could spill over into the wider Chinese economy and possibly further.

The firm said in a statement that the halt in the trading of its shares was called, “pending the release by the company of an announcement containing inside information about a major transaction”.

The news came as reports said Hopson Development Holdings planned to buy a 51-percent stake in its property services arm.

However, traders remain concerned Evergrande will miss payments on bond obligations, putting it in default.

Hong Kong stocks, already under pressure owing to concerns about China’s crackdown on a range of industries including tech firms and casinos, sank more than two percent.

Tokyo fell 1.1 percent — a sixth straight loss — while Taipei was also in negative territory.

– Key figures around 2050 GMT –

Brent North Sea crude: UP 2.5 percent at $81.26 per barrel

West Texas Intermediate: UP 2.3 percent at $77.62 per barrel

New York – Dow: DOWN 0.9 percent at 34,002.92 (close)

New York – S&P 500: DOWN 1.3 percent at 4,300.46 (close)

New York – Nasdaq: DOWN 2.1 percent at 14,255.48 (close)

London – FTSE 100: DOWN 0.2 percent at 7,011.01 (close)

Frankfurt – DAX: DOWN 0.8 at 15,036.55 (close)

Paris – CAC 40: DOWN 0.6 percent at 6,477.66 (close)

EURO STOXX 50: DOWN 1.0 percent at 3,996.41 (close)

Tokyo – Nikkei 225: DOWN 1.1 percent at 28,444.89 (close)

Hong Kong – Hang Seng Index: DOWN 2.2 percent at 24,036.37 (close)

Shanghai – Composite: Closed for a holiday

Euro/dollar: UP at $1.1623 from $1.1596 at 2100 GMT on Friday

Pound/dollar: UP at $1.3608 from $1.3546

Euro/pound: DOWN at 85.37 pence from 85.60 pence

Dollar/yen: DOWN at 110.93 yen from 111.05 yen.

AFP

Top Oil Producers Agree To Boost Output From August

An oil pumpjack operates in Signal Hill, south of Los Angeles, California on April 21, 2020, a day after oil prices dropped to below zero as the oil industry suffers steep falls in benchmark crudes due to the ongoing global coronavirus pandemic. Frederic J. BROWN / AFP.

 

The world’s leading oil producers agreed on Sunday to continue to modestly boost output from August reaching a compromise after the United Arab Emirates blocked a deal earlier this month.

An OPEC+ meeting decided to raise output by 400,000 barrels per day (bpd) each month from August to help fuel a global economic recovery as the pandemic eases, the group’s Vienna-based secretariat said in a media statement.

The grouping will “assess market developments” in December, it said. The deal also extends a deadline on capping output from April next year to the end of 2022.

Earlier in July, negotiations of OPEC+ members on easing production cuts became deadlocked due to a row between the world’s largest oil exporter Saudi Arabia and neighbour the United Arab Emirates.

Since May, the 23-member grouping, which also includes Russia, had raised oil output bit by bit, after slashing it more than a year ago when the coronavirus pandemic crushed demand.

The aim is to return to pre-pandemic production levels, with the alliance still pumping 5.8 million bpd less than it was before the pandemic.

‘Consensus building’

In a rare challenge to OPEC leader Saudi Arabia, the UAE rejected the proposed deal earlier this month as “unjust”, leading to a stalemate.

But in a compromise, Sunday’s discussions agreed to adjust output quotas next May for the UAE, Iraq, Kuwait, Russia and Saudi Arabia itself, meaning their actual cuts will be less.

Saudi Energy Minister Prince Abdulaziz bin Salman, who chairs the OPEC group, declined to say how the new quotas were decided and beneficiaries chosen, saying it had been part of “consensus building”.

Russian Deputy Prime Minister Alexander Novak told public television channel Rossia 24 that the meeting confirmed “our desire to be constructive and to find a consensus”.

“The pandemic is not yet overcome, but we are seeing that thanks to vaccination all over the world, demand for our production is recovering as is the use of cars and air planes,” he said.

“It is therefore very important for us to fulfil our responsibilities and allow a recovery of the world economy.”

‘Flurry of talks’

Observers had expected a deal.

“A flurry of talks were held on Saturday to try and close the gap,” tweeted Herman Wang, an editor of S&P Global Platts, which specialises in coverage of the energy industry, ahead of the meeting, which lasted just about one hour.

Oil prices — which had already been sliding owing to concerns about the global economy — plummeted in April 2020 as coronavirus spread around the world and battered global consumption, transport and supply chains.

OPEC+ then decided to withdraw 9.7 million bpd from the market and to gradually restore supplies by the end of April 2022 — a deadline that has now been extended.

Benchmark oil prices rebounded as a result and have reached two-and-a-half-year highs. The main international oil contracts have been trading around $75 per barrel.

Economic rivalry was at the heart of the feud between OPEC members as the Gulf states try to cash in on their vast oil reserves as they face the beginning of the end of the oil era.

Disagreements between Saudi Arabia and UAE — once inseparable allies — are usually resolved behind palace walls and rarely spill into the open.

Ministers from OPEC+ countries have gathered frequently since the spread of the new coronavirus to assess the market with the next meeting scheduled for September 1, according to Sunday’s statement.

AFP

Major Oil Producers Seeking Output Boost To Meet On Sunday

OPEC

 

 

Major oil producers seeking to boost output will meet on Sunday, OPEC said, after negotiations earlier this month became deadlocked over plans to gradually ease production cuts.

The OPEC+ grouping, which includes Saudi Arabia and Russia, will meet via videoconference at 1000 GMT on Sunday, the Vienna-based OPEC Secretariat said in a statement.

The group’s 23 members cancelled a meeting on July 5 that was supposed to overcome an impasse over crude output levels.

Since May, the group has raised oil output bit by bit, after slashing it more than a year ago when the coronavirus pandemic crushed demand.

At stake is a proposal that would see the world’s leading oil producers raise output by 400,000 barrels per day (bpd) each month from August to December.

That would add two million bpd to markets by the end of the year, helping to fuel a global economic recovery as the coronavirus pandemic eases.

A further proposal seeks to extend a deadline on capping output from April 2022 to the end of 2022.

But holding out against the new deal was the United Arab Emirates, which criticised the terms of the extension as unjust.

Oil prices, which had already been sliding owing to concerns about the global economy, plummeted in April 2020 as coronavirus spread around the world and battered global consumption, transport and supply chains.

OPEC+ decided to withdraw 9.7 million bpd from the market and to gradually restore supplies by the end of April 2022. Benchmark oil prices rebounded as a result.

AFP

Oil Demand Surges, Market Set For Deficit And Volatility – IEA

 

 

Oil demand surged last month as rising vaccination rates helped underpin robust economic activity, but with OPEC+ nations pumping less than needed prices are set to be volatile until it reaches a deal to raise output, the IEA warned on Tuesday.

A meeting of OPEC+ nations earlier this month was deadlocked over plans to gradually ease production cuts, imposed to reverse the plunge in oil prices at the start of the coronavirus pandemic as demand tumbled.

But demand is rebounding, with the International Energy Agency estimating it surged by an estimated 3.2 million barrels per day (mbd) last month, which is more than a third of the overall drop in demand last year.

The IEA expects oil demand to rise by another 3.3 mbd in the three months from July. That is more than twice as large as the seasonal increase registered during the same period in 2019, which the IEA said is a result of easing Covid restrictions and increasing vaccination.

While OPEC+ had been set to gradually raise oil output, the stalemate means production is frozen at current levels until an agreement is found.

“Oil prices reacted sharply to the OPEC+ impasse last week, eyeing the prospect of a deepening supply deficit if a deal cannot be reached,” the IEA said in its latest monthly report.

The main international oil contracts have been trading around $75 per barrel, and some analysts see a spike to $100 as possible.

But there is another possibility: the overall OPEC+ deal breaks down and producers open the taps and try to gain market shares, which would likely lead to prices crashing.

“At the same time, the possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery,” said the IEA.

Investors have been worried that a surge in inflation could force central banks to raise their ultra-low interest rates, thus removing one of the main supports for the economic recovery.

The IEA said that absent increased production by OPEC+ nations the market for crude is set to tighten, with additional stocks built up during the pandemic already gone and reserves running below the long-term average in industrialised nations.

Furthermore, it forecasts the biggest draw upon stocks in at least a decade will happen this quarter as OPEC+ pumps nearly 2 mbd less than market demand. The gap will rise to 3.2 mbd in the final three months of the year.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy,” the IEA warned.

It also noted that a spike in prices would not be in the long-term interest of oil producers.

“While prices at these levels could increase the pace of electrification of the transport sector and help accelerate energy transitions, they could also put a drag on the economic recovery, particularly in emerging and developing countries,” the IEA report said.

While the agency, which advises oil-consuming nations, foresees oil demand recovering along with the global economy, it doesn’t discount the pandemic continuing to weigh upon the market.

“Covid-19 remains a significant threat to oil demand growth in the near- to medium-term, in particular in the non-OECD.”

Emerging nations not in the OECD group of advanced nations — such as China and India — were responsible for much of the growth in the global economy before the pandemic.

OPEC+ Expected To Move To Cool Overheating Oil Market

In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP
In this file photo taken on November 29, 2016, the logo of OPEC is pictured at the OPEC headquarters on the eve of the 171th meeting of the Organization of the Petroleum Exporting Countries in Vienna, Austria. JOE KLAMAR / AFP

 

 

 

The OPEC+ group of oil-producing countries will meet on Thursday and are expected to agree to boost production in August in order to meet demand and dampen recent price rises.

While improvement in demand drove the group’s most recent rises in production, now price levels will also be a guiding force behind the club’s decisions.

After demand dropped when the coronavirus pandemic broke out last year and crude prices briefly turned negative, the club led by Saudi Arabia and Russia imposed sharp production cuts in order to raise prices.

The 13 members of OPEC and their 10 allies in the OPEC+ grouping were rewarded by seeing prices for the two contracts of reference, Brent and WTI, recover to around $75 per barrel, levels not seen since October 2018.

However that strategy has worked almost too well and the group is currently following a policy of cautiously turning the taps back on.

– ‘Rising pressures’ –
While on the face of it buoyant prices are a boon for producers — and some of them will be pushing to increase output to cash in — there are also risks.

Russia is expected to favour increasing output, as it has done at several recent OPEC+ meetings.

Moscow “may be more inclined to support a production increase in order to ensure a higher market share while limiting the risk of rising non-OPEC production,” according to Ole Hansen from Saxobank.

“Pressure will likely not only come from within the group, but there will also be growing calls from key consumers to cool the market down, as countries come out of the other side of Covid-19 lockdowns,” says Warren Patterson of ING bank.

India is a notable example. The world’s third-largest consumer of crude has been hit by a vicious coronavirus wave in recent months and has urged OPEC+ “to phase out crude output cuts to temper rising inflationary pressures”, noted Stephen Brennock from PVM.

“If prices remain this high, this will eat into consumers’ disposable incomes and potentially choke economic growth, which, over time, will weigh on crude prices,” explained Fawad Razaqzada of Thinkmarkets.

The OPEC+ states have left themselves soom room for manoeuvre as they are currently still planning to leave 5.8 million barrels per day (bpd) of crude in the ground over the month of July that they could easily extract and sell.

Most investors are currently expecting a modest rise of some 500,000 bpd over the month of August.

But OPEC+ always has the capacity to surprise.

– ‘Travel intensive summer’ –
The outlook for crude demand has been steadily improving in recent months.

In its last report in mid-June, the International Energy Agency (IEA) forecast that global demand would outstrip pre-pandemic levels by the end of 2022.

Jeffrey Halley of Oanda noted that demand will be boosted as “Americans embrace a travel intensive summer” on cars, planes, and cruises, as well as due to the fact that “the global vaccination rollout is improving”.

As ever in recent months, the cartel will have to pay attention to diplomatic developments relating to one of its members in particular — Iran.

If current negotiations on a US return to the 2015 Iran nuclear deal are successful, the country may be able to resume exporting oil at levels prior to 2018, when former US President Donald Trump dramatically withdrew from the deal and imposed sanctions.

However, this would be unlikely to affect the market until later in the year and there are plenty of other factors at play.

The spread of the highly contagious Delta variant of the coronavirus has led to fresh restrictions being imposed in Australia, South Africa and Thailand.

Since December the OPEC+ countries have been meeting every month in order to calibrate their strategy as closely as possible to the latest developments.